ENRON CASE, set of bad administrative decisions
Enron company faced several financial problems, product of bad administrative and operational decisions. The curious thing about the case is that they were breaking their own code of ethics and only applied to low -ranking employees. Why these firms hide their operational results? Quite possibly to hide the mismanagement of the financial, operational and administrative resources of the Enron company, to continue keeping the company afloat in the stock market and maintain its personal profit from those involved, at the expense of the best interest and valuesof the company.
The capacity of ingenuity and the response, how to solve financial problems, a way that all this scaffold was hidden, without the slightest suspicion. Excessive lobbyist expenses for the elimination of restrictions in the enronform the multinational enron. According to Mememese (2011), “Enron’s bankruptcy is more than a case of poor management or business negligence. The scandal comes from the appeal to unacceptable accounting manipulations in a company that sought its capital in the stock market, this allowed to sell overvalued shares. The company created a series of apparently external financial vehicles, which allowed it to hide its losses and maintain its price in the stock market ”. We can highlight several elements used by firms to hide operational results. A principle used was to alagar the transactions until the end of the accounting period, with the purpose of overvaluing the results. For Mememese (2011), they were "extremely complicated transactions, based on hypothetical future events". Another was to hide negative results in the purchase and sale of assets, contracts were registered as a gain to which they were visualized for several years and using instrumental companies to avoid and minimize the payment of tax and the use of irresponsible financial instruments, to reducelosses and overvalue assets. In the Stock Exchange they used the “Stock Options” method, a risk method, which was used to try to hide information. According to Mememese (2011), “If the actions go up, the manager wins and if they go down, he does not lose anything, he is tempted to embark on excessively risky projects that can earn a lot, but they can also lose everything … when there are losses, he has incentivesto cover them up for a few months so that the actions do not lower while he executes his options and increases his coffers ”. In addition to serious conflicts of interest, where the external and internal auditor was the firm Arthur Anderson. There were irregularities in accounting reports and destruction of documents. The use of the aggressive accounting method, in order to manipulate the information. According to Mememese (2011), “the agency costs in relation to Enron adopted, among others, the following ways: realization of unnecessary expenses, prices hiring above the market, difficulty of promotion of good executives, entrepreneurship of projects withExcessive risk, among others ". The company had no controls, to manage capital.
The interesting thing about this case is understood, apparently nobody notice anything weird or strange. Neither runners, nor financial analysts in the stock market, which motivated Enron’s shares, nor investment banks, nor shareholders, they saw nothing strange, that a company spends a lot of money and that there is no lost. There is a chorus that says, everything was coldly calculated. Even the investigation of the US Senate. UU. He concludes that Enron’s board was warned about the situation and ignored it. The investigation also concluded that if the Board of Directors had attended the warnings, the company’s situation could have resolved. How long happened, with the fraud scheme? The scheme began to set since 1987, it began to sharpen in 1997, when skilling created the RAC. According to Healy & Palepu (2009), “an independent group called Evaluation and Control of the Risk (RAC)… the responsibilities of the RAC included the analysis of significant financial and non -financial risks of all businesses, projects and transactionsof Enron ". He exacerbated, when Enron abused special purposes (SPE) entities, as a prevention strategy, to transfer the debts of the company Enron to SPE entities.
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